Our expectation is that investors buy into our simple story: Delhivery ED

Logistics start-up Delhivery’s Executive Director Sandeep Barasia explains to Surajeet Das Gupta the reason the firm is launching its initial public offering (IPO), which opens on Wednesday, just a few days after the closing of the mega public offering of the Life Insurance Corporation of India (LIC) in a market that appears to be headed southwards. Edited excerpts:

Q. Many would question the timing of the IPO, coming just after LIC’s mega share sale. Many potential retail investors would have their money stuck in LIC when you come to the market. Also the market is down, so is it bad timing? 

A. We are not experts on market timing, we are busy running our operations. And the markets can go any way. It is mostly a primary offer. The reason we decided to launch it just after LIC’s IPO was that our December results would become stale and we would have had to refile with the March quarter results if we delayed beyond May 15 (we will file the results in May). This would have delayed the IPO by a couple of months. Any delay after the Securities and Exchange Board of India (Sebi) gives clearance has several challenges as even for any merger and acquisition of Rs 500 crore we have to go back to the regulator. We also have to go back to our investors. Our objective was to take the company public, we cannot time the market, it is mostly a retail offer, so we decided to go ahead and expect that the people will value the company correctly. Doing an IPO puts a big strain on the management. I would rather spend time running the business.

Q. But since it has a large retail component, don’t you think large IPOs will have an impact? 

A. Our retail offer size is Rs 500 crore, which is not very large. LIC has also dramatically reduced its IPO size from what we initially heard — from Rs 70,000 crore to Rs 21,000 crore. If we were going against the Rs 71,000-crore IPO, we would have been very concerned as cash would not be available. But with Rs 21,000 crore and with our retail component being only Rs 500 crore we expect that our investors will find it attractive and buy our story.

Our story is simple. We are a tech-enabled logistics company with high growth of 50 per cent annually and recession proof. And we have reached adjusted Ebitda (earnings before interest, taxes, depreciation, and amortisation) of only -0.72, which was near breakeven in December or for nine months. In the June quarter, however, it was –3.7, which means we must have been profitable in the next two quarters.

Q. What made you reduce the IPO size by 30 per cent?

A. There were three reasons. First and foremost, the secondary offer was reduced by 50 per cent from Rs 2,400 crore to Rs 1,200 crore as the existing shareholders wanted to stay with us for longer. So, while earlier they were selling 6-7 per cent of their shares now it is half of that. Also the top management is not selling any shares and is staying invested. And based on our balance sheet till December, we already had cash reserves of Rs 3,000 crore, so raising Rs 4,000 crore was enough as our aim was to have cash reserves of around $1 billion, which we hope to achieve.

Q. What do you plan to do with the money raised?

A. Of the Rs 4,000 crore raised, Rs 1,250 crore will be used for acquisitions. What we will not do is become financial investors or venture capitalists, but we will only buy assets that are core to our business. And mostly we will look for a majority stake or buyout the business altogether. Our focus is in acquiring businesses that have revenue and are profitable, and, secondly, to acquire capabilities. We have already spent Rs 1,545 crore on acquisitions and strategic initiatives in the last five years.